Thornton Hall prison in north Dublin will now not be built until 2015 at the earliest and is expected to remain in public-private partnership (PPP) as the government coffers are empty.

Justice minister Dermot Ahern could bring the new proposals about how to develop the prison to the cabinet as early as Tuesday.

He had been considering funding the project with capital from the National Pension Reserve Fund, but it is understood that he now favours PPP, meaning the government can pay for it over 25 years rather than paying a lump sum up front. "The money just isn't there to do it," said a government source.

The Irish Prison Service (IPS) last month broke off negotiations with the PPP consortium chosen to provide the prison at Thornton Hall.

The Léargas consortium was the preferred bidder in the competition to design, build, maintain and finance the jail in north Dublin. The prison service said that an evaluation of a final offer from Léargas concluded that it would not be affordable.

The prison sevice will now re-tender for a consortium to undertake the design and construction of Thornton Hall. The successful consortium will pay for the costs and receive fixed payments from the state.

"It will be re-advertised and we'll go back to the market. In the initial plans for the prison, it was going to be built with gold plating and all, with all the bells and whistles. But now, the economic climate has changed," said the government source.

"The specifications of the prison will now change. The same amount of money to build it is not there as it was in the good times. The new design will reflect that. It may be a scaled-down version. It will not be the 'super prison' that was once proposed."

It was initially envisaged Thornton Hall would be operational by 2010. It could take up to three years for the preferred bidder to be chosen and then design and cost the project.

With overcrowding a major problem in Irish prisons, this further delay will open the government to criticism over the straining prison system. "There really is no choice but to re-tender this. Construction costs have dropped dramatically and it can be built at a better price than initially forecast," the source added.

Before negotiations broke down, the Léargas consortium was requested to drop the quoted price of €400m by 20% but said this would not be acceptable to their funders. it has not yeat been decided if the Centeral Mental Hospital will be relocated to a site adjoining the new Thornton Hall prison complex.